Australia passes carbon tax

Australia has passed landmark laws to impose a price on carbon emissions, making it the second major economy behind the EU to pass carbon-limiting legislation.

The impact of the carbon tax will be felt right across the economy, from miners and liquefied natural gas (LNG) producers to airlines and steel makers, and is aimed at making firms more energy efficient and push power generation towards gas and renewables.

The vote is a major victory for Australian Prime Minister Julia Gillard, who staked her political future on what will be the most comprehensive carbon price scheme outside of Europe, despite deep hostility from voters and the political opposition.

Australia now has a “price on carbon as the law of our land”, Gillard said. “This comes after a quarter of a century of scientific warnings, 37 parliamentary inquiries, and years of bitter debate and division."

Australia has spent more than a decade debating the issue, which was instrumental in the 2007 fall of former conservative Prime Minister John Howard and Labor's Kevin Rudd in 2010. Opposition leader Tony Abbott has sworn a "blood oath" to repeal the laws if he wins power in 2013.

Australia accounts for just 1.5 per cent of global emissions, but is the developed world's highest emitter per capita due to a reliance on coal to generate electricity.

The legislation is being watched closely by others considering similar plans to cap carbon emissions, which are blamed for fuelling climate change. In the United States, California starts its scheme in 2013, while China and South Korea are also working on carbon trading programmes. India has a coal tax, while South Africa plans to place carbon caps on its top polluters.

"It is the single most important policy mechanism that Australia has had and as a result it will increase certainty for participants," said Geoff Rousel, Westpac's global head of commodities, carbon and energy.

The scheme is a central plank in the government's fight against climate change and aims to halt the growth of the country's growing greenhouse gas emissions from a resources-led boom and age-old reliance on coal-fired power stations. It sets a fixed carbon tax of A$23 ($23.78) a tonne on the top 500 polluters from July 2012, then moves to an emissions trading scheme from July 2015. Companies involved will need a permit for every tonne of carbon they emit.

Australia’s carbon market is forecast to be worth as much as A$15 billion ($15.5 billion) by 2015, with sale of permits to raise A$25 billion in the first four years. Passage of the carbon price laws is expected to ensure the global market continues to expand over the next few years.

The World Bank estimated the global carbon market was worth about $142 billion in 2010, with the European Union Emissions Trading Scheme accounting for 97 per cent of trade.

The government hopes the bill's passage will help re-ignite the push for a global agreement to curb emissions ahead of international talks in Durban in December.

The laws are meant to give companies a financial incentive to curb pollution, and will help Australia reach its goal to cut emissions by 5 percent of year 2000 levels by 2020.

Farmers will be exempt from the scheme but will be able to cash in by selling carbon offsets under separate laws.

The package of 18 new laws sets up the carbon price as well as billions in compensation for export-exposed industries and local steel makers, as well as personal tax cuts for 90 per cent of workers, worth an average A$300 a year.

Export-focused industries with intensive emissions, such as aluminium, zinc refiners and steel makers, will get 94.5 per cent of carbon permits for free for the first three years.

The government expects the scheme to spur a multi-billion dollar investment rush in new, cleaner energy sources, including natural gas and renewable power stations, to replace Australia’s ageing coal-fired plants.

Canberra has committed more than A$13 billion for renewable and low emissions projects, including a A$10 billion independent Clean Energy Finance Corporation, with around A$100 billion in renewables sector investment expected by 2050.

However, full introduction of the Australian scheme remains uncertain with Abbott's promise to scrap it if he wins power. Gillard's minority government holds power by only one seat.

The next election is not due until late 2013, but opinion polls show Gillard's government would easily be swept from office. Abbott could potentially take power at any time in the event of a by-election in a government-held seat.

A poll on Tuesday showed the conservatives leading Labor by 53 percent to 47 percent. The government's popularity had improved slightly over Gillard's handling of economic and industrial relations problems.

The carbon price is one of three key policies Gillard promised when she became leader, alongside a planned tax on iron ore and coal mines and new measures to deter asylum seekers.

Dead-heat elections last August forced her to negotiate details of the carbon price with the Greens and three independent lawmakers.

Climate Minister Greg Combet said the government would stick to its A$23 a tonne price, despite it being almost double the European cost of between $8.70 and $12.60 a tonne, which is four-year-lows on the back of global economic uncertainty.